Being a small business it's highly likely that you've received a cheque from a customer that has bounced and, while bouncing a cheque can be a deliberate strategy to delay payment, more often than not the source of the problem is a cash flow issue. In these instances, the customer will write a cheque in the hope that they will be able to cover the amount before you hit the bank.

But what should you do if this situation occurs? Many small businesses have either a very small credit team or they don't have a credit team at all so all employees are required to share the accounts receivable responsibilities. That means it's important you develop a set of procedures for your team to follow in the event that they are forced to deal with a bounced cheque. Below are a few simple tips to help your team manage this situation: 

• Contact the customer immediately 
• Remind the customer about the importance of a good credit rating
• Always be polite but firm

Contact the customer immediately

There is absolutely no question that contacting a client about a bounced cheque is a task that SMEs dread but, it's important that you act on this immediately.

If this is the first time this client's cheque has bounced you may wish to give them the benefit of the doubt and accept that this situation could have resulted from factors outside of your client's control. By doing this you should be able to maintain a cooperative relationship - you will also save your customer a significant amount of embarrassment.  But, be wary if your client repeatedly uses excuses such as "the bank transferred my funds into the wrong account" or "a cheque from one of my customers bounced and left me short this month".

If this practice becomes a re-occurring situation you need to quickly put a stop to it. This may mean opting to only accept cash as payment on delivery or, in more extreme cases, it could mean severing a client relationship. You will also need to make sure you put appropriate mechanisms in place so that you can avoid taking on clients that don't have sufficient funds to pay their bills.

Remind the customer about the importance of a good credit rating

Now that you have plucked up the courage to make the call, you need to ensure that you achieve the best possible outcome - that is, you get paid in full and quickly.

Ask your customer to pay their account (in some form other than a personal cheque) as soon as possible and in doing so, be clear about your deadline. That said, it is important to be reasonable, particularly if you are requesting a cash payment, as your customer will need to take time out of their day to travel to your workplace (a few days should be ample time for your client to fulfill this request).

During this conversation, remind your customer (politely) about the importance of a good credit rating. Paying bills late and bouncing cheques will have a detrimental impact on a firm's credit profile and in turn, this will impact that firm's ability to access credit when they need it.

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Always be polite but firm 

As well as getting your money quickly, the purpose of your call should be to maintain a positive relationship with your customer as you don't want to lose their business. To achieve this outcome, the "polite but firm" approach is required. If you use threatening or aggressive tactics they will likely come back to haunt you, especially if the bounced cheque turns out to be the result of a problem which was beyond your customer's control.

A bounced chequecan be the result of an administrative error but it can also be the first sign of a serious problem. This is why it's important to give your customer the benefit of the doubt the first time around. In doing so you will show your customer that you are fair and understanding. However, you should also be on your guard so you can act promptly to rectify the situation should it occur again.

Knowing how to deal with bounced cheques and many other common occurrences that credit teams face is critical to effectively managing your cash flow.